Right now, airline stocks look like horror movie extras after being slashed by coronavirus fears.
Since peaking at $30.78 in Feb. 2020, American Airlines (NASDAQ:AAL) is now down to $11.25. Delta Air Lines (NYSE:DAL) fell from $60 to $24. United Airlines (NASDAQ:UAL) plummeted from $84 to $25. Southwest Airlines (NYSE:LUV) fell from $58 to $31.
Travel restrictions are keeping folks at home and airlines are in freefall, as carriers announce schedule cuts to conserve cash, and trimming guidance to match.
And yet things could still get worse for the sector. According to the U.S. government, we could see the pandemic last up to 18 months or longer. Hospitals are also sounding the alarms on short supplies with the outbreak showing no signs of slowing.
While the fear has become palpable, it’s also creating a “blood in the streets” opportunity for stocks, like American Airlines.
Airlines Would be No. 1 for Bailout, Says President Trump
Granted, the virus has been terrifying for many of us. Total confirmed global cases are now up to 254,653 with 10,415 deaths. Employees are being forced to work from home. Businesses are being shut down. Many of us are stuck homeschooling our kids with schools closed.
Airlines travel has been devastated. So much so, American Airlines plans to cancel up to 30% of its flights or May, and 23% in the second quarter, says Barron’s contributor Daren Fonda. Delta has canceled 65% of flights in May and 50% for the second quarter.
Again, the fear is palpable, but it’s creating an opportunity for patient investors.
One, months from now, no one will be talking about the coronavirus. Consumers and businesses alike will resume their lives. Travel restrictions will be lifted, and demand for international flights will pick up again.
Two, President Trump has pledged to help airlines: “Airlines would be No. 1,” the president said. “You go from having the best year they have ever had to having no passengers because of what we have had to do to win this war — and it’s a war.”
Be Greedy When Others are Fearful
“American and its peers are far from a cash crunch. The company successfully raised more than $1 billion earlier in the year and has significant unencumbered assets to borrow against if it needs more cash in a pinch. At year’s end, it also had about $7.1 billion in total available liquidity under its borrowing agreements,” noted Motley Fool contributor Lou Whiteman.
While buying American Airlines isn’t for the squeamish, if you can ignore the headlines, and focus squarely on the long-term story, I think it’s a good time to buy and hold AAL stock, long-term. A year from now, with the virus in the rearview mirror, I think AAL stock could be back up to $20 a share. If you can handle the turbulence, I think American Airlines is a good bet.
Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
